PUBLIC STATEMENT 1/17: THE ANTITRUST DIRECTOR GENERAL'S CONSIDERATIONS IN ENFORCING THE PROHIBITION AGAINST UNFAIRLY HIGH PRICES

{C}{C}{C}1.INTRODUCTION

In recent years the question of a monopolist charging an unfair price has attracted the attention of the Antitrust Authority and following this also that of the general public. Before the publication of the Public Statement regarding the Prohibition on Charging an Unfair Excessive Price by a Monopolist ("Public Statement 1/14"), the Antitrust Authority ("the Authority") rarely dealt with the subject and its enforcement activities against monopolists were concentrated mainly on exclusionary practices, aimed at forcing competitors out of the market. On 9 April 2014, the Antitrust Director General ("the Director General") published Public Statement 1/14, which for the first time presented the Authority's position concerning unfair high prices charged by monopolists. Public Statement 1/14 regarded an unfair high price as a violation of Section 29A of the Antitrust Law, 5748-1988, and stated that the Authority would deal with enforcing the prohibition. Public Statement 1/14 sought to set parameters for determining what is an unfair high price while specifying various alternative methods for the calculation of the fair price that a monopolist may charge.Finally, Public Statement 1/14 prescribed the "safe harbor" rule whereby monopolists whose prices are no more than 20% above the costs recognized in the Public Statement will not be subject to enforcement of the prohibition by the Authority.

Since the publication of Public Statement 1/14, it has been subject to extensive public debate in regards to the very decision to prohibit an unfairly high price, to the question of what is an unfairly high price and to the safe harbor prescribed therein. In the ten months prior to publication of the Public Statement, the Authority conducted an extensive hearing regarding the issue.[1] A variety of positions were submitted to the Authority; the Authority approached international experts for the purpose of consultation and commissioned an opinion from an international antitrust and competition expert ; additionally, an internal learning process took place based on the experience accumulated by the Authority in its implementation of Public Statement 1/14 since its publication. In addition, the Authority held a seminar dedicated to the subject, where experts in the field dealt with various aspects of the prohibition on charging an unfairly high price.

The present Public Statement replaces Public Statement 1/14 and presents the Authority's updated policy on the subject. It is the product of the Authority's insights both on the implementation of Public Statement 1/14 since its publication and from the variety of opinions brought before it.

This Public Statement deals with the method of implementation and enforcement of the prohibition on abuse of monopolist status in Section 29A of the Antitrust Law, 5748-1988, in cases where a monopolist has charged an unfairly high price. The Public Statement, effective from the date of publication, presents the considerations and rules that will guide the Director General when deciding on enforcement measures in these cases. This Public Statement does not derogate from or alter any provision of any law and the contents thereof should be read alongside the rules prescribed in the law and the case law.

{C}{C}{C}2.OVERSIGHT OF MONOPOLISTS IN ANTITRUST LAW – GENERAL

Antitrust law provides the Director General and the private individual with tools to prevent harm to competition and the public. Competition deserves protection, as it promotes efficiency, increases the overall economic utility and benefits consumers, inter alia, by reducing prices and increasing the variety and quality of products. The core of the Authority's activity and the purpose of the antitrust laws are focused on protecting and promoting free competition with the aim of increasing the aggregate welfare in the economy.[2]

One of the occurrences antitrust laws seek to regulate is harm to competition and the consumer public by entities with a monopolistic status in the market. The Antitrust Law, 5748-1988 (hereinafter: "the Antitrust Law" or "the Law") states that anyone possessing more than one half of all the supply of the assets or the purchase thereof in the market is a "monopolist ". This is based on the assumption that anyone who has a significant or dominant market share also holds market power.[3] Market power is associated with the ability to harm supply conditions of a product, its price or quality over time relative to the conditions that would have prevailed in a competitive environment.

The Antitrust Law does not prohibit the existence of a monopoly. In fact, the aspiration of a competitor to increase its market share at the expense of its competitors is perceived as what fuels competition and provides the competitors with incentives to streamline and innovate. When a single competitor succeeds in realizing this aspiration, it may attain a monopolistic status in the market and there is nothing wrong with this, per se. Nevertheless, the Law applies a special code of conduct to a monopolist, that arises from its unique status in the market and whose purpose is to prevent it from adopting practices that may harm competition or the public.[4] The two main restrictions applicable to a monopolist pursuant to the Law are the prohibition in Section 29 of the Law on refusing to supply the monopoly product on unreasonable grounds, and the prohibition, relevant to this current statement, in Section 29A of the Law regarding abuse of status in a manner liable to harm competition or the public.

It is customary to divide the concerns that are liable to arise from the monopolist's conduct into two categories: exclusion and exploitation.[5] Exclusion describes activities that, when taken by a monopolist entity, are liable to force competitors out of the market or to prevent the entry of new competitors, and thereby lead to the reinforcement or preservation of the monopolistic status. Exploitation is a monopolist's use of its dominant status in the market to earn profits at the expense of the consumer or at the expense of other links in the supply chain in the market. There is broad consensus that the antitrust laws must remedy the concern of exclusion of competitors and competition. On the other hand, there is debate as to whether antitrust law is the proper framework for the dealing with the concern of exploitation. This Public Statement deals with acts of an exploitative nature, and does not deal with exclusion that is liable to harm the public by forcing competitors out of the market or by preventing the entry of potential competitors.

"29A.(a) A monopolist shall not abuse its status in the market in a manner liable to reduce business competition or injure the public.

(b) A monopolist shall be deemed to be abusing its status in the market in a manner which might reduce business competition or harm the public, in any of the following instances:

(1) Establishing an unfair buying or selling price for the asset or service over which the monopoly exists;

(2) Reducing or increasing the quantity of the assets or the scope of the services offered by the monopolist, not within the context of fair competitive activity;

(3) Establishing different contractual conditions for similar transactions in a manner which may grant certain customers or suppliers an unfair advantage vis-א-vis their competitors;

(4) Conditioning the contract regarding the asset or service over which the monopoly with conditions that, by their nature or according to accepted trading practices, are unrelated to the subject matter of the contract.

The provisions of this subsection are supplementary to the provisions of subsection (a).

The list appearing in Section 29A(b) does not exhaust all cases amounting to abuse of position. The presumption that shall be discussed in this Public Statement is the one set forth in Section 29A(b)(1) of the Law whereby a monopolist that sets an unfair buying or selling price for the monopoly product shall be deemed to have abused its position.

Before Public Statement 1/14 was published, this presumption was traditionally interpreted by the Authority as applying in cases where "predatory" prices were charged – that is, selling at a loss in a manner liable to force competitors out of the market. This prohibitionon charging a predatory price by a monopoly was designed to prevent a monopolist from harming the competition in the market. The prohibition is classified as an exclusionary prohibition and not as exploitative prohibition and it is closely linked with the main purpose of antitrust law.

In regard to unfairly high prices, until the publication of Public Statement 1/14 the Authority had not published an official position, but in practice it did not take any enforcement measures against excessively high prices.{C}{C}{C}[7]{C}{C}{C} The Authority's approach was aligned with the lack of clarity in the case law. The only time that the Supreme Court discussed whether the prohibition existed, it refrained from ruling and noted that this was not an obvious question.{C}{C}{C}[8]

This traditional approach adopted by the Authority on this issue was based on the main purpose of the Antitrust Law being the protection of competition. In the words of the Supreme Court: "At the basis of the Law lies competition, which is designed to ensure effective allocation of resources and increased efficiency".{C}{C}{C}[9]{C}{C}{C} Direct intervention in a high price charged by a monopolist is not intended to prevent harm to competition or to promote competition but to mitigate the harm to consumer welfare arising from the absence of competition.{C}{C}{C}[10] Furthermore, as shall be set out below, a prohibition on charging an unfairly high price entails many theoretical and practical difficulties. In light of this, one can understand the extreme caution exercised by the Supreme Court in relation to entrenching this specific cause of action in Israeli law.

In Public Statement 1/14 the Authority set out for the first time a position whereby charging an unfair high price by a monopolist is included within the definition of restrictions on the conduct of a monopolist by virtue of the conclusive presumption dictated in Section 29A(b)(1) of the Law, and also that the Authority will take enforcement measures against excessive prices of monopolists. Since then, the District Court has also handed down a decision in the Naor case, stating that the prohibition in Section 29A(b)(1) includes both a prohibition on charging a low-predatory price and a prohibition on charging an unfairly high price,{C}{C}{C}[11]{C}{C}{C} and recently this position was also adopted in the District Court decision in the Weinstein case.{C}{C}{C}[12] This is also the frame of reference for the present Public Statement: charging an unfairly high price may, under the appropriate circumstances, be regarded as abuse of monopoly position.

However, recognizing the existence of the prohibition on charging an unfairly high price is not the end of the debate but merely its beginning. Examining whether a high price charged by a monopolist should be deemed unfair is not simple. The Supreme Court noted this as long ago as the Reiss Case:{C}{C}{C}[13]

"Determining the line dividing between a fair price and an unfair price is difficult. I am prepared to accept that we do not have to present a 'precise' borderline, but we should, prima facie, establish the unfairness of the price already at the first stage… A class plaintiff wishing to assume such a very complex task may for example submit a hypothetical economic opinion on questions such as the costs of establishing a credit card company, the risks, the profits and so forth and thus why the monopolistic price is not, prima facie, a fair price."

This quote is consistent with the language of Section 29A(b)(1), which leaves a wide room for interpretation, since the content of the phrase " unfair buying or selling prices" is very far from obvious.

This Public Statement sets a list of considerations, the existence of which will incline the Director General to enforce the prohibition on charging an unfair high price against a monopolist.

A wide range of approaches exists worldwide regarding the recognition of the an unfairly high price as a cause of action and regarding to the method of enforcing it. As will be detailed below, there are significant reasons for all of these approaches.

Thus, there are those who completely rule out enforcement against high prices and even regard such an enforcement policy as being a harmful policy that eventually harms consumer welfare. This approach is expressed in American law, whereby charging an unfair high price, in and of itself, is not prohibited. American law prohibits monopolization, namely taking measures with the aim of obtaining control of the market or forcing out competitors not within the framework of competition on the merits.{C}{C}{C}[14] On the other hand, no prohibition exists there on abuse of a monopolistic position in the market in order to make a profit from the consumers.

In a nutshell, the approach ruling out enforcement against charging high prices is explained by three main reasons.{C}{C}{C}[15]{C}{C}{C} One is that the possibility of charging a higher price than the price that would have been charged under regular competitive conditions may encourage profit-promoting investments ab initio. The ability to charge high prices is what encourages corporations to invest in research and development, innovation, reputation, creativity and manufacturing.{C}{C}{C}[16]{C}{C}{C} The second reason is that too high a price is likely "to correct itself" by encouraging potential competitors to enter the market.{C}{C}{C}[17]{C}{C}{C} The third reason lies in the difficulty in determining what precisely is an unfair high price and measuring it, the heavy administrative costs involved in the attempt to do so and the question of the expertise of a competition authority to deal in matters similar to price controls.{C}{C}{C}[18]{C}{C}{C} These arguments must be considered when designing an appropriate policy, even if it is recognized that charging an unfair high price is an abuse of a monopolistic status under the appropriate circumstances.

On the other hand, other approaches, the most prominent being that of the European Community, maintain that antitrust law should include a prohibition against a dominant firm charging unfairly high prices . According to these approaches, charging an unfairly high price is liable to distort the effective allocation of products and services in the economy and harm consumer welfare, the interest that stands at the center of antitrust law. This is because certain consumers, who would have purchased the product or the service had it not been for the high price, now refrain from purchasing it, while the other consumers are compelled to purchase the product at a higher price, thus diverting some of the consumer welfare to the monopolist.{C}{C}{C}[19]

Section 29A of the Law is based upon Section 102 of the Treaty on the Functioning of the European Union, and therefore special emphasis should be given to the European law when interpreting the monopoly law in Israel, in particular in an issue such as this, where Israeli case law is sparse. European law has been interpreted in the case law as prohibiting charging an unfairly high price, but the prohibition is enforced rarely and in a restrained manner, in recognition of the clear preference for enforcement directed towards competition, as well as the difficulties involved in the enforcement against an unfairly high price. Caution and discretion in the enforcement of the prohibition are also likely to alleviate, or at least diminish, the concern of harming competition and consumer welfare in the long term, which are the basis for the arguments ruling out enforcement in cases of charging an unfairly high price.{C}{C}{C}[20]

The restrained approach to enforcing the prohibition in Europe is already expressed in the Annual Report of the European Competition Commission for 1994, which clarifies that direct intervention in prices is not the best route for competition authorities and explains that the Commission would, for the most part, focus on activities by a dominant firm that prevent the entry and expansion of competitors.{C}{C}{C}[21]{C}{C}{C} The guidance document issued by the Commission in 2008 concerning abuse of dominant position also focused on giving guidance concerning acts harming the competitive structure of the dominant firm's market and not on the direct enforcement of the price charged in the market. The Commission justified this position by the concern of having to deal with ongoing enforcement of fair prices and the notion that it is preferable to prevent the competitive problem than to attempt to cure it retroactively.{C}{C}{C}[22]

At the roundtable held by the OECD in 2011 that dealt with the issue of unfairly high prices, the European Competition Commission expresseda position that one should enforce unfairly high prices only in appropriate cases, where there is no other remedy that can improve the state of competition in the market. According to the position expressed there, which is also reflected in European case law, the prohibition against charging an unfair high price is enforced in the European Union as a last resort, when high prices and profits prevail over time and there are significant barriers to entry and expansion.{C}{C}{C}[23]

The Commission also noted in the roundtable paper that balancing the concerns with the practical and methodological difficulties entailed in enforcement vis-a-vis dominant firms will lead to focusing the enforcement efforts on lowering the entry blocks rather than direct enforcement against an unfair high price:

"…As a consequence the balance in the EU over the last 50 years has been tilted towards addressing the exclusionary conduct, to prevent that exclusionary leads to market conditions which allow exploitation of consumers, rather than intervening directly against exploitative conduct. This has resulted in rather limited case law concerning excessive prices."{C}{C}{C}[24]

And indeed, it may be seen that in practice the European Competition Commission acts in an extremely restrained manner vis-a-vis the enforcement of unfairly high prices, and most of its decisions concerning abuse of dominant position deal with exclusionary acts and not with exploitative acts.{C}{C}{C}[25]

Recently, the Chairwoman of the European Competition Commission once again emphasized that the Commission's attention is first and foremost aimed at protecting the competitive structure of markets, that it is important to avoid a situation wherein the Commission takes the place of the free market and that enforcement vis-a-vis high prices must be carried out only in rare cases, while paying attention to its influence on the incentives to innovate.{C}{C}{C}[26]

Looking at the way that the prohibition on charging unfairly high price has been implemented and enforced in the various countries in Europe also reveals that enforcement is focused on clear cases in which the benefit from enforcement prevails over the counter-arguments. The impression given by examining the proceedings enforcing the prohibition on unfairly high prices that have been instituted in European countries during recent years is that the intervention is carried out in a relatively restrained fashion.

Thus for example in Germany, in 2012 the competition authority determined that the water corporation in Berlin had charged an unfairly high price in comparison to the water prices in other cities with similar characteristics.{C}{C}{C}[27]{C}{C}{C} Alongside the recognition of the prohibition against a dominant firm charging an unfairly high price, the German authority notes that its enforcement of the prohibition would focus on clear and extreme cases, in light of the concern of the chilling effect of competition arising from enforcement of the prohibition.{C}{C}{C}[28]{C}{C}{C} In Great Britain, the Office of Fair Trading (OFT) held in 2001 that NAPP had charged an unfair high price for slow-release morphine for pharmacies, inter alia in light of significant differences in the price offered to pharmacies and to hospitals. The OFT's position was adopted by the competition tribunal in 2002.{C}{C}{C}[29]{C}{C}{C} On 7.12.2016 the British Competition and Markets Authority (CMA), which replaced the OFT, fined the pharmaceutical companies Pfizer and Flynn Pharma for the high prices charged for anti-epilepsy drugs.{C}{C}{C}[30]{C}{C}{C} Alongside the enforcement activities in the appropriate cases, Great Britain clarified in its position to the roundtable that the prohibition on charging unfairly high prices should only be implemented when the following conditions are met: the concern of a chilling effect on investment is minimal, the market is characterized by high barriers to entry and there is no better remedy for correcting the market structure.{C}{C}{C}[31]

{C}{C}{C}5.PRINCIPLES IN THE ENFORCEMENT OF THE PROHIBITION AGAINST CHARGING UNFAIRLY HIGH PRICES

The moderate approach taken around the world regarding unfairly high prices is based upon recognizing the need to deal, in certain cases, with prices that are too high, while at the same time understanding that such intervention is also problematic. In this latter context one should consider an additional difficulty that should not be taken lightly. The phrase "unfairly high price" has no economic meaning. The science of economics, upon which the antitrust laws are based, does not deal with fairness. In light of this, questions arise regarding what precisely is an unfairly high price and when does a fair price become an unfair price. The answers to these questions are unclear. Two things may be said in this context: firstly, these questions raise not only implementational difficulties, but also substantive conceptual difficulties that lie at the very heart of the prohibition against charging unfairly high prices. Secondly, one should be wary of trying to deal with this difficulty with legal tools alone. The legal world may, prima facie, allow a particular threshold to be considered "fair". However, legal interpretation that is isolated from the economic implications may lead to the collapse of the theoretical basis upon which the antitrust laws stand, so that enforcement of the prohibition against charging an unfairly high price would become arbitrary. It should be recalled – even if economics has no tests and tools for determining the fairness of a price, it has tools for examining the economic implications of using the term "fairness" with regards to price. An overly broad, uniformed or disproportionate use of the term "unfairly high price" has economic implications. As shall be demonstrated subsequently, this point is very important in terms of shaping correct enforcement policy and it guides us to focus on cases where it may be said with a high degree of certainty that the economic benefits of intervening through unfair prices exceeds the damage.

Below we will set out the principles in the light of which enforcement measures will be examined in cases where a suspicion of unfairly high prices arises.

Enforcing the prohibition against an unfairly high price will be done only in the appropriate cases. The substantive and practical difficulties in the doctrine of unfairly high prices do not lead to a conclusion that rules out enforcement against unfairly high prices.

The traditional antitrust remedies for harm to consumer welfare and aggregate welfare are to prevent obstacles to competition from being promoted and to promote competition in markets where competition is limited, for example by removing or lowering barriers to entry and transfer in these markets. However, there may be cases where this is not possible. When it is not possible to take steps to correct the market structure, the Authority will examine the possibility of rectifying some of the harm by enforcing the prohibition against charging unfairly high prices.

The prohibition against unfairly high prices has disadvantages that should be considered when shaping the enforcement policy. On the substantive side, price control chills incentives for investment and innovation; on the practical side, enforcing the prohibition against charging unfairly high prices drains considerable resources and its chances of success are the highest; on the institutional side, it is doubtful whether the competition authority is the most appropriate body to regulate prices, in comparison with the Prices Supervision Committee operating pursuant to the Regulation of Prices of Goods and Services Law, 5756-1996, as well as the sectoral regulators with price regulation powers (such as the various tariffs regarding connection to the electricity network and the use of electricity set by the Electricity Authority – the Public Utilities Authority). These are just some of the concerns arising from use of the prohibition against charging unfairly high prices in a manner that is liable to be more harmful than beneficial. Accordingly, alongside the recognition of the existence of a prohibition against a monopolist charging unfairly high prices, a restrained approach is required with regard to the cases that will considered violations of this prohibition and with regard to the cases that will justify starting enforcement proceedings concerning the violation.

European law and European Competition Commission policy are an interpretive source in shaping the enforcement policy. As mentioned, Section 29A of the Law was inspired by Section 102 of the TFEU, and the Authority's position is that the considerations to be exercised with regard to enforcement shall be similar to those common worldwide. Nevertheless, when the Authority considers enforcement in relation to a particular product in monopoly, the Authority shall take into account the specific characteristics of the market examined and inter alia the characteristics arising from the unique dynamics of the product market in Israel.{C}{C}{C}[32]

The inevitable conclusion is that enforcement of the prohibition against unfairly high prices should be carried out with caution and in moderation. As stated, enforcing the prohibition against charging unfairly high prices requires caution and a focus on clear cases where the benefit in enforcement outweighs the harm.{C}{C}{C}[33] Therefore, the Authority will base the enforcement of the prohibition against charging unfairly high prices on two leading considerations, which will form the basis for concrete criteria to be presented below:

Firstly, as mentioned the enforcement will focus on the circumstances in which the static competitive analysis of the market, as conducted by the Authority, indicates that the monopolistic party is especially dominant, while the dynamic competitive analysis leads to the conclusion that natural competitive pressures or removal of barriers to entry are insufficient to encourage competition or to provide a solution for the absence of competition in the relevant market.{C}{C}{C}[34]

Secondly, the prima facie severity of the violation will be weighed against the negative effects that may be caused by over-enforcement of the prohibition. Thus, for example, the Authority will tend to intervene when the profit margin is especially high and when there are considerable differences in power between the monopolist and the consumers of the product or the service; on the other hand it will tend not to intervene in cases where enforcing the prohibition has a greater likelihood of harming positive incentives.

{C}{C}{C}6.CONSIDERATIONS OF THE ANTITRUST AUTHORITY IN ENFORCING THE PROHIBITION AGAINST UNFAIRLY HIGH PRICES

The policy of the Antitrust Authority in implementing and enforcing the prohibition against charging unfairly high prices will be based upon the principles outlined above. As is common to the competition authorities that enforce this prohibition, the policy must strike a balance between various parties and considerations, in order to optimally realize the goals of the Antitrust Law, integrate with the Authority's whole scope of activities and create sufficient certainty in the market.

Below we will detail the considerations to be weighed by the Antitrust Authority when deciding whether to enforce the prohibition against charging unfairly high prices against a monopolist. It should be clarified that these considerations shall be examined collectively, while attempting to correctly balance between them in such a way as to optimally delineate the borders of the prohibition. Under the specific circumstances of each case, it is possible that one consideration will receive greater weight than another.

{C}{C}{C}A.THE ABSENCE OF ALTERNATIVE COMPETITIVE REMEDIES

The basic concept of antitrust law is that structural measures that promote competition or prevent harm to competition are preferable to direct intervention in prices. This preference for a solution creating a competitive potential in the market, insofar as it exists, arises mainly from the understanding that the competitive mechanism is the one that will lead to the most efficient allocation of resources, and that it is not possible to achieve a similar result by an external decision regarding the appropriate price.{C}{C}{C}[35]

In addition, retrospective regulation of the prices charged by a monopolistic firm may remedy the harm to the public in the short term but this is insufficient to provide a long-term solution to the deep-seated problem the market is suffering from; in this sense it is like dealing with the symptoms instead of treating the disease itself.{C}{C}{C}[36] Even after using the tool of unfairly high prices, the monopolist still has market power, which allows it to raise prices on various pretexts or to worsen the quality of the service and the products sold. It should be recalled that a monopolist can compensate for a price reduction by harming quality, but the prohibition against charging unfairly high prices deals with the question of the price alone.

On the other hand, a structural remedy or another regulatory change that leads to lowering the barriers to entry to the market may help the market in a manner that does not require ongoing oversight and which allows a fundamental change in the market towards a more efficient structure.

Accordingly, as a rule, the Authority's top priority will be to take structural measures such as removing the barriers blocking entry or barriers to expansion or to customer transfer; imposing behavioral prohibitions designed to prevent harm to competition; and creating a competitive process that will be beneficial for consumers.{C}{C}{C}[37]{C}{C}{C} When it is possible to promote competition in the market and thus deal with the monopolistic firm's ability to raise prices, the Authority will prefer this solution over direct intervention in the price. It should be recalled that intervention in prices, in itself, affects the market dynamics – so when the Authority identifies developing competition in the market or when structural measures, regulatory changes or other provisions aimed at promoting competition in the market are adopted, the Authority will refrain from intervention by way of enforcing unfairly high prices.{C}{C}{C}[38]

In light of the above, even in cases where there is limited competition in a particular market and the market is controlled by a monopolistic firm, the Authority will first examine whether it is possible to rectify the situation in the market by creating a competitive process. When that question can be answered in the affirmative, the Authority will act to prevent the monopolistic firm from adopting practices designed to fortify its monopolistic status and force out competitors. Alongside this, the Authority may exercise its power to give instructions to the monopolist with the aim of removing barriers and improving the competitive situation in the market. Furthermore, the Authority can also act by counseling government ministries as to actions that will improve the competitive situation in the market.

{C}{C}{C}B.THE PRICE IS SIGNIFICANTLY HIGHER THAN THE PRICE EXPECTED TO HAVE BEEN SET UNDER COMPETITIVE CONDITIONS

Naturally, one essential step in enforcing a norm prohibiting a monopolist entity from charging an unfairly high price is determining that the price charged by the monopolist is higher than the one which would have been set under competitive conditions. As already clarified in Public Statement 1/14, this is a complex challenge both methodologically and the practically speaking and it is also important to create a sufficiently clear test so that the monopolist to reasonably know in advance that the price it is charging is high and may lead to enforcement measures being taken.

The background document{C}{C}{C}[39]{C}{C}{C} for this review and the legal and economic literature in the field noted that none of the usual tests for identifying an unfairly high price is free of difficulties. Therefore, the conclusion regarding there being an unfairly high price should be reached when such a conclusion is supported by as broad as possible a range of indications.{C}{C}{C}[40]

It appears that the cases where this challenge can be met will be cases where clear indications arise that the price charged is significantly higher than the price that would have been charged under competitive conditions. These indications may arise from the circumstances of the case as a whole, and generally speaking, the Authority will prefer cases where the high price and its excessiveness are blatant and clear to all.

In appropriate cases, use can also be made of the tests accepted around the world and which are elaborated upon in the appendix to this Public Statement. Thus, sometimes the comparison test can be used, comparing between the price charged by the monopolist and the prices charged in the past for the same product or service, or prices that are more exposed to competition, such as the price of similar products manufactured by the monopolist, the prices of rival products or the price charged in other markets for a similar product.

Additionally, a price significantly higher than the price expected to have been set under competitive conditions may also be indicated by an unusual yield on the monopoly product compared to the yield common among other firms manufacturing similar products or an especially high margin between the price of the product and the cost of its production. In regard to the cost test, it must be taken into account that in reality, unlike in basic and simplistic economic models, it is extremely rare for the price to come close to the marginal cost of production even under competitive conditions. In addition, as reliance upon the cost test is likely to encourage monopolists to price their products based on "cost-plus", the Authority will, as a rule, refrain from basing its conclusions regarding the price solely on cost tests. This is because this method of examining the fairness of the price raises several theoretical difficulties and is likely to have a negative influence, inter alia, on the incentives to streamline, to save manufacturing costs and to innovate and take risks in launching new products.

In summary, the Antitrust Authority will take enforcement measures against unfairly high prices only when there are clear indications that the price charged by the monopolist is significantly higher than the price should have been charged under competitive conditions. The Antitrust Authority is of the opinion that there is no particular rate above manufacturing cost above which it can be said across-the-board that a price is unfairly high.

The threshold above which enforcement measures may be taken will be set in each specific case, taking into account the product's characteristics, on both the supply side and the demand side, as well as the market characteristics, such as investments, risk, tendency to innovation and more.

{C}{C}{C}C.THE HIGH PRICE CHARGED IS UNFAIR

Deciding when a price higher than the price that would have been set under competitive conditions also becomes unfair is complex, and includes a values-based judgement regarding the fairness of the price charged to consumers.{C}{C}{C}[41]{C}{C}{C} Unlike predatory prices, where the main purpose of the Antitrust Law – protecting competition – serves as an important tool in determining whether the price is unfair, in the case of high prices the main aim of the prohibition – preventing harm to the public – is more vague, and thus ruling on this matter is more complex. As aforementioned, this evaluation cannot aim for an economic answer, but it must take into account its effect on the economy, which is examined with economic tools. This ruling integrates a balance between short-term and long-term considerations.{C}{C}{C}[42]

When the Authority faces this question, it must take into account the power balance between the monopolist and the consumer. The greater the power differentials between the parties – i.e. consumers do not have a genuine alternative to purchasing the monopoly product{C}{C}{C}[43]{C}{C}{C} – the more the Authority will tend to regard charging prices significantly higher than the prices that would have been charged under competitive conditions to be an unfair act on the part of the monopolist.{C}{C}{C}[44]

In this context, the Authority will also take into account the monopolist's status in the market and the direct harm that has been caused to consumers. In most cases, measures against charging unfairly high prices will be taken when a monopolist, consistently and over time, has near-absolute control of the market.{C}{C}{C}[45] Near-absolute control of the market exacerbates the harm to consumers, given the combination of the high price they are charged and the limited alternatives they have.

Similarly, when the concern arises that the high prices charged by the firm prevent the creation of new products and services in adjacent markets or for competitors out of adjacent markets, this will also be a special consideration supporting intervening in the price.{C}{C}{C}[46]{C}{C}{C} Another primary consideration is the direct harm caused to the consumers. When the high price is charged by the monopolist over a period of time, if the product is regarded by consumers as essential{C}{C}{C}[47] or when it serves as an essential input for many other goods and services in the market, the Authority will tend to regard it as charging an unfair price which justifies enforcement measures.

At this stage, we must consider, inter alia, the serious concern expressed in the literature and by competition authorities regarding enforcing the prohibition against charging unfairly high prices: the concern of harming dynamic competition and firms' incentives to innovate and invest.{C}{C}{C}[48]{C}{C}{C} Firms' incentives to invest in research and development are reduced when they lose the opportunity to enjoy the fruits of such investments. This chilling effect is exacerbated by the uncertainty and lack of clarity created by applying the prohibition retrospectively, so that the firm does not know in advance what the maximum price it is permitted to charge.{C}{C}{C}[49] Accordingly, the concern of harming incentives increases primarily when the product or the service for which a high price is charged is in a high-risk field, and the Authority will see this as a consideration against taking enforcement measures for charging an unfairly high price.

On the other hand, when a monopolist achieved its status thanks to historical circumstances concerning the way the market was planned by the State, a regulatory environment that has prevented or impeded competition from developing or the monopolist's own actions to force out competitors and reinforce its position, the concern of future harm to firms' incentives to innovate and invest decreases.

When examination of the above considerations indicates that an unfairly high price may have been charged, the Authority may also take other considerations into account before deciding whether to enforce the prohibition, including:

THE EXISTENCE OF A SECTORAL REGULATOR

Alongside the Antitrust Authority's institutional function of as an enforcement and executive authority entrusted with safeguarding competition, there are other government institutions whose function is to regulate the activity of firms with significant presence in the various markets. Insofar as such a regulator exists and possesses designated tools for regulating the prices charged by a monopolist, the Authority will tend not to exercise its power to enforce the prohibition. This is because the Authority's advantage relative to a sectoral regulator is in its understanding and experience in the context of competition and not in price control in that sector.

Furthermore, when such a regulator uses those tools and actually sets a particular regulated price, the Authority will refrain from taking enforcement measures in respect of charging that price. Nevertheless, the Authority reserves the option of expressing its position in this matter to the relevant regulator.

CONSIDERATIONS CONCERNING RESOURCE ALLOCATION

As in any administrative activity, the Antitrust Authority will weigh considerations concerning the effective allocation of its resources prior to taking enforcement measures. Within regards to unfairly high prices, this will be done with attention to the significant allocation of resources entailed in handling such cases.{C}{C}{C}[50]

Generally, the Authority will focus its enforcement activity upon cases where it can overcome the difficulties involved in this examination, and as noted above, it will tend to enforce cases where there are indications that the price charged is significantly higher than the price that should have been charged under competitive conditions and where there is no concern of future harm to the incentives in the industry.

{C}{C}{C}7.REVOCATION OF THE SAFE HARBOR PROTECTION IN PUBLIC STATEMENT 1/14

It has been decided to revoke the "safe harbor" protection prescribed in Public Statement 1/14, whereby a monopolist is protected against enforcement by the Authority as long as the gap between the price of its products and the cost of their production does not exceed 20%.

The safe harbor protection arose from the desire to promote certainty and make it easier for the monopolist to plan its behavior, yet the experience gained since the publication of Public Statement 1/14 and the re-examination by the Authority have shown that it raises significant difficulties, such that the damage created by the protection and its harm to consumer welfare in the long term considerably outweigh its benefits:

Firstly, the safe harbor, which was based on a gap of 20% (like any other gap that might have been set), is arbitrary and not based on any empiric or economic examination indicating that these are the cases that are appropriate for enforcement. The standard is insufficient because it treats different and varied markets in the same way, without giving any weight to the differences that exist between markets and between products. Thus, for example, in capital- and risk-heavy industries characterized by significant investment in development and innovation, a higher profit margin may be required to encourage manufacture of new products whose development involves taking risks. On the other hand, in other cases this threshold may be much higher than the rate of profitability common in a particular industry. The complete disconnect between the threshold set and any economic rationale does not permit the Authority to continue to maintain it.

Secondly, global law and professional literature show that a standard based on a gap between a product or service's production cost and its price is not accepted. The majority of scholars and competition authorities actually prefer setting threshold conditions based on the relevant market conditions, the position of the monopolistic firm and the circumstances which allowed it to achieve this position.{C}{C}{C}[51] A safe harbor based solely on a gap between the cost and price cannot be a sufficient indication of legality and therefore of there being no reason for enforcement – which require a more profound examination of the circumstances of the case.

Thirdly, setting a safe harbor based on the cost-price test, in practice, favors one legal test for determining the existence of an unfairly high price. This test may influence firms in the market to price their products based on the "cost plus" method. The background document noted the various difficulties with this system of pricing and the fact that it is likely to adversely affect incentives for efficiency and innovation, thus, eventually, harming consumer welfare. Therefore, when examining the fairness of the price charged by the monopolist, the indications arising from implementing all the various tests and the methodologies recognized in the case law should be appraised without giving precedence to the cost-price test. The European Competition Commission, as well, noted in the Port of Helsingborg case that the cost-price test should not be relied upon as the sole test and that a gap between the product's price and its cost does not necessarily lead to a conclusion concerning the unfairness of the price charged.{C}{C}{C}[52]

Fourthly, while the Public Statement expressly held that the safe harbor was exactly that and was not designed to determine the threshold above which a price would be deemed excessive, a concern arose that the safe harbor protection would become (and perhaps had already become) the normative binding threshold concerning the legality of monopolist pricing. This is true both with regard to the monopolist's business activity and also to private consumers as well as plaintiffs. This is a position that has no economic or comparative basis whatsoever and the Authority opposes it.

{C}{C}{C}8.THE ENFORCEMENT MEASURES WHICH THE DIRECTOR GENERAL WILL TAKE AGAINST CHARGING AN UNFAIRLY HIGH PRICE

The Antitrust Law grants the Director General the power to take administrative enforcement measures against a monopolist that charges unfairly high prices (such as administrative sanctions pursuant to Section 50D(a)(3)) and also allows criminal enforcement measures to be taken against it (Section 47(a)(4A) of the Law), all subject to the conditions detailed in the Law. In accordance with the Director General's notice pursuant to his authority under Section 50D(a)(3) of the Antitrust Law regarding the type of acts and omissions relevant to administrative sanctions under the Law,{C}{C}{C}[53]{C}{C}{C} a monopolist's charging an unfairly high price will be grounds for levying administrative sanctions by theDirector General. Similarly, in accordance with Public Statement 1/12: The Antitrust Authority's Guidance Regarding the Use of the Administrative Sanction Enforcement Proceedings,{C}{C}{C}[54] administrative sanctions will be the primary enforcement tool for abuse of position in violation of the provisions of Section 29A of the Antitrust Law. Given this, the means of enforcement that the Director General will implement for charging an unfairly high price will be imposition of administrative sanctions on the monopolist, and the Antitrust Authority will not exercise criminal enforcement powers against charging unfairly high prices.

{C}{C}{C}9.SUMMARY

The unfairly high price doctrine seeks to prevent the harm to the public caused by the ineffective allocation of goods and services, arising from the abuse of a monopolistic market position in order to charge unfairly high prices. Likewise, the doctrine is designed to prevent the consumer being exploited by charging unfair prices.

Since the publication of Public Statement 1/14, extensive public debate developed concerning the many aspects of the prohibition against charging unfairly high prices. After examining the statement in cooperation with the public, the Authority decided to provide a Public Statement that would replace Public Statement 1/14. The Authority is of the opinion that the policy in this current statement is more consistent with the accepted thinking in antitrust field and the lessons learned from enforcing the prohibition worldwide and will help focus the Authority's enforcement efforts on those cases where it is right to act against an unfair high price, in terms of the purpose of antitrust law and the core of the Authority's activity; the effective use of the Authority's resources; and minimizing the concern of harming incentives to innovate and streamline, and ultimately –consumer welfare.

As set out at length in this document, the main criteria for taking enforcement measures in cases where the concern arises that an unfairly high price has been charged are:

First of all, the Authority will examine whether there are other competitive remedies that can cure the harm to competition of which the high prices are a symptom.

If no such competitive remedy is found and the Authority also does not see that competition is developing in the relevant market which might be delayed by direct intervention in the price, the Authority will examine whether the price charged is significantly and clearly higher than the price that would have been charged under competitive conditions.

During the next stage, the Authority will examine whether the high price charged is also unfair. The question of unfairness will be determined by the power balance between the monopolist and the consumer and will be weighed in light of the relevant circumstances, such as the product characteristics and the demand, the monopolist's market share and market position, the structure of the sector in which the firm operates, the level of risk entailed in the production of the goods in this sector, etc. The existence or absence of a sectoral regulator and what, if any, steps it has taken in the market will also be taken into account.

Michal Halperin

The Antitrust Director General

Jerusalem, 2 Adar 5777

28 February 2017

APPENDIX –TESTS FOR IDENTIFYING UNFAIRLY HIGH PRICES

Below we will discuss three accepted methodologies for identifying unfairly high prices and how to implement them in cases that may come before the Antitrust Authority in the future. Generally, in a given case, the Authority will prefer to examine the conclusion arising from the implementation of each of the methodologies when making a determination with regards to charging an unfairly high price, insofar as this is possible under the circumstances. As aforementioned in the Public Statement, the cases in which it will be appropriate to take enforcement measures are those where clear indications arise that the price charged is significantly higher than the price that would have been charged under competitive conditions. These indications may arise from the circumstances of the case as a whole or from applying these tests.

{C}{C}{C}A.EXAMINING THE GAP BETWEEN THE PRODUCT PRICE AND THE COST OF PRODUCTION

Comparison between the product price and the cost of its production has been recognized by courts and competition authorities worldwide as one of the accepted tests for identifying unfairly high prices. This test measures the monopolistic price by comparing between the relevant costs of the monopolist in manufacturing the product and the price charged for it. This test is used based on the assumption that there is a normative limit to the monopoly rent that the monopolist may derive at the expense of its customers.

To implement this test, we must first determine which costs should be taken into account in calculating the cost of manufacturing the product whose price is being examined. In addition, we must determine whether consider the costs of the company being examined or the costs of a company with a certain normative level of efficiency (when the company examined has significantly higher relevant manufacturing costs than this normative efficiency).

To calculate the cost of production it is standard practice to use the Long Run Average Incremental Cost (LRAIC), which is the total costs required to enter the market and supply the product or service, divided by total output. This is, in essence, the company's cost of penetrating the market up to the supply of the product or service examined. In this calculation weight should be given both to the monopolist's fixed{C}{C}{C}[55]{C}{C}{C} and variable costs{C}{C}{C}[56], both as relevant to a particular product or service.

The costs that should be taken into account will be determined based on the individual circumstances of the case brought before the Director General. When examining the fairness of the price of a raw material, an interim product or an interim service, purchased by companies that resell their products, significant weight will be attributed to the probable influence of the unfairly high price on the final consumer of the product. The Authority does not see fit to set a closed list of costs which will be the only ones to be taken into account in calculating the cost of product manufacture.

As to the question of whose costs will serve as the basis for the calculation, the opinion has been voiced that we should consider the costs of an efficient firm or the most efficient firm in the market and not the costs of the firm examined.{C}{C}{C}[57]{C}{C}{C} This is so as to prevent artificial inflation of costs on the part of the firm examined (which would lead to setting a higher price as the price seen as prohibited) and not to harm the incentives for streamlining.{C}{C}{C}[58]{C}{C}{C} On the one hand, considering the costs of the firm examined may indeed encourage inefficiency or grant an undesirable reward for inefficiency, because the firm may avoid streamlining under the assumption that streamlining will mean lowering the price it is permitted by law to charge. On the other hand, considering the costs of an efficient firm that is not the firm being examined may unjustifiably harm a dominant firm that is not the most efficient in the market, by lowering the price threshold it is allowed to charge and exposing it to sanctions for this.{C}{C}{C}[59]

The advantage in relying upon the costs of the company examined is that this relies on data which the monopolist generally has, in one way or another, so that it can give the monopolist some certainty about the size of the gap between its costs and the price it charges. On the other hand, since the dominant firm is generally unaware of how efficient other firms in the market are, examining the price charged by the firm based on this criterion will diminish the degree of certainty granted to the firm.

After weighing these considerations, the Authority has decided to examine the difference between the product price and the cost of its manufacture according to the relevant costs of the monopolist examined, subject to these costs being reasonable costs that a manufacturer or supplier of the same type as the monopolist would have incurred, and subject to the monopolist's methods of reporting and calculating costs complying with the accepted reporting standards. The necessary adjustments shall be made if the monopolist's costs are found to be exceptional and unjustified. Thus, for example, exceptional salary costs that unreasonably exceed the usual salary in the sector in which the monopolist operates will not be taken into account in assessing the cost of the manufacture. When the manufacturing costs are divided between a number of parties constituting a single substantive economic entity and operating on the basis of joint economic interest, all the relevant costs incurred by these parties in respect of the product in the monopoly shall be taken into account.

{C}{C}{C}B.PROFITABILITY ANALYSIS

The second methodology that serves as an indication to identify unfairly high prices is based upon the company's profitability analysis. To perform this analysis two indices are required: the first will serve as an attribution index and the second will represent the company's actual profitability, with both indices relating to the same point in time. A finding showing that the index representing the company's actual profitability is consistently and significantly higher than the attribution index may constitute a significant indication of an unfairly high price. This section shall set out some of the standard indices in the literature that have also been noted in the writings of other competition authorities worldwide. It should be emphasized that noting the profitability indices below does not compel the Antitrust Authority to adopt these indices when examining a company's profitability for the purpose of enforcing the prohibition against charging unfairly high prices. The Authority will conduct an examination of the monopolist's profitability based on the individual circumstances of the monopolist examined, the circumstances of the relevant market and the other relevant circumstances required for analysis by the Authority.

As an attribution index for analyzing a company's profitability it is customary to use the weighted average cost of the capital for the company or the sector in which it operates (WACC). This index represents the market perception with regard to the level of risk in the sector in which the company operates and in fact measures the yield required by the investors for an investment in the company. This attribution index weighs the costs of various factors required for financing the company's assets. These factors mainly include the equity and the debt raised by the company.{C}{C}{C}[60]

Indices based on the company's performances, as reflected in its financial statements, are compared with the attribution index. The two types of indices standard for this are ROCE, which represents the yield created by the company's assets and which is calculated by dividing the company's profits, excluding financing expenses, by the total active capital at a particular point in time;{C}{C}{C}[61]{C}{C}{C} and IRR or TIRR, which are the yield brought in by total anticipated cash flow as a result of the company's future activity, capitalized to the relevant point in time, to zero.{C}{C}{C}[62] In other words, these indices calculate what should be the minimal interest or alternative yield on the saving that we would have preferred to receive instead of performing the activity in question.

The types of indices differ in how they are calculated. The ROCE index is calculated according to value data in the company's books, and accordingly it is more sensitive to the rules of accounting.{C}{C}{C}[63] The IRR and TIRR indices use future anticipated flows, but calculating them requires appraising the economic value of the intangible assets based on a model, and it is reasonable that there will be a wide range of disagreement with regard to their value.

Although calculating profitability by means of comparing capital cost to yield is a standard, and even preferable, method to examine the profitability of sectors and companies, this method has a built-in disadvantage in terms of examining of unfairly high prices in relation to a specific product or service. If the firm manufactures a variety of products, of which the examined product is only one, then the capital costs, calculated at the level of the firm or the entire sector (for the purpose of comparison), do not relate to the single product. The comparison to the yield only on assets connected to a particular product or service involves problems of methodology and implementation.{C}{C}{C}[64]

{C}{C}{C}C.THE COMPARISON TEST

Comparing the price charged by a monopolist with the price of rival products, the price charged to other customers or the price of a similar product in another geographical market has been recognized, as aforesaid, in the Supreme Court case law and also in European law as an indication to help identify an unfairly high price. Similarly, the price charged during the period examined can be compared with the price charged before or after that period.{C}{C}{C}[65] The datum on which the comparison is based is not necessarily the price charged by a monopolist, but may be for example the monopolist's profitability. Thus, the profitability of the monopoly may be compared with that of other firms or of the monopoly itself in other markets or times.

It should be emphasized that implementing the comparison test in a particular case does not mean that the price of the product to which the monopoly product's price is compared is a competitive price; but rather than an unreasonable deviation from the former price may still indicate unfairness in the price charged by a monopolist.

In order to be able to rely on the conclusion arising from comparing the price charged by a monopolist (or any particular component of this price) with another price, we must make certain that there is a relevant basis for the comparison. There is an internal contradiction involved in comparing with competitors' prices: if the competitors are really making products that are substitutes for the product alleged to be unfairly priced, it is not clear why the consumers do not purchase from the cheaper competitor. On the other hand, if the competitors' products are not substitutes, the comparison seemingly is not be informative.{C}{C}{C}[66]{C}{C}{C} In a geographical comparison, the level of fixed costs and capital intensity are expected to be similar in the same sector in different geographical markets, and also in different countries (as long as the cost of the manufacturing inputs is not very different), and so the comparison of the prices should be more relevant.{C}{C}{C}[67]

Naturally the conditions prevailing in the market serving as the basis for comparison will rarely be absolutely identical to those prevailing in the market in which the monopolist operates via the product in monopoly. Accordingly, the Antitrust Authority will take into account the relevant differences on both sides of the equation and make the appropriate adjustments if and when necessary.

[1]{C}{C}{C} On 21 September 2016, a draft public statement was published for the public's remarks, about five months after the publication of the Background Document for the Reevaluation of Public Statement 1/14 – the Prohibition on Charging an Excessive Price by a Monopolist (18.04.2016), Antitrust 500966 ("the Background Document(".

[2] See for example: Criminal Appeal 5823/14 Shufersal Ltd. v. the State of Israel, paragraphs 31 and 43 of the judgment of the Deputy President Rubinstein (published in Nevo, 22.10.2015); Civil Appeal 2247/95 The Antitrust Commissioner vs. Tnuva Joint Center for the Marketing of Agricultural Produce in Israel, Ltd. Piskei Din 52(5) (213), paragraph 17 of the judgment of President Barak (as he then was) (1998); Criminal Appeal 4855/02 the State of Israel vs. Borovich Piskei Din 59(6) 776, paragraph 79 (2005).

[5] See for example: Monopolies (Antitrust) 1/93 The Antitrust Commissionervs. Dubek Company Ltd., paragraph 15 of the judgment (1995) Antitrust 3005459; determination regarding abuse of position in the market: Bezeq International Ltd. Antitrust 3010364 (9.11.1997) pp. 10-13 of the determination.

[6] Section 29A was added to the Law by an amendment dated 1996 against the background of the wish to expand the scope of the provisions concerning the permitted behavioral norms for monopolists, similarly to what is acceptable in the laws of the European community. See the explanatory words to the Antitrust Law draft (Amendment No. 2), 5756-1995, Draft Laws 2446, 228 (14.11.1995). Further in the matter of the purpose underlying the amendment to the Law see protocol of meeting no. 606 of the Finance Committee, the 13th Knesset (22.1.1996) and the protocol of meeting no. 624 of the Finance Committee, the 13th Knesset (27.2.1996).

[7] As part of the OECD survey, the Authority expressed the position whereby the prohibition on determining an unfair level of prices includes a prohibition on charging an aggressive price and an unfair high price. See:

[9] Civil Appeal 2247/95 The Antitrust Commissioner vs. Tnuva Joint Center for the Marketing of Agricultural Produce in Israel, Ltd. Piskei Din 52(5) 213, paragraphs 17-18 of the judgment of President Barak (as he then was) (1998) and also see Footnote 2 above.

[16] In the American judgment in the Trinko case, an argument was made claiming that the very possibility of achieving a monopolistic profit, even in the short term, encourages firms to compete fiercely with each other and seek methods of streamlining and innovation. Thus, restricting the possibility of charging a monopolistic price in advance is likely to cool down the firm's incentive to compete and thus undermine the basic aim of antitrust laws: promoting competition for the benefit of the consumer (see: Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004)).

[18] As shall be set out in detail subsequently, the difficulty in determining what is an unfair high price does not arise only from the technical difficulties concerning the collection and processing of the relevant material, but also from the necessity to determine what is the borderline beyond which a price shall be deemed to be unfair in every single case.

[31] The OECD roundtable document, appendix to Great Britain's position in p. 296. In the roundtable document the reference to the regime in Great Britain is in the context of exploitation and not an exclusionary rationale (see in p. 288).

[32] The Israeli economy is a unique one. It is a highly centralized economy, with import restrictions, that in practice operates almost as an island economy. These characteristics of the Israeli economy have given rise to the question of the policy instituted in Israel with regard to the prohibition against unfairly high prices should be different than the one accepted in the rest of the world.. Different scholars have reached contradictory conclusions in this matter. Thus, Prof. David Gilo regards the unique characteristics of the Israeli economy as justifying a more aggressive policy in enforcement against unfairly high prices, while Prof. Michal Gal and Dr. Hila Nevo maintain that the characteristics of the Israeli economy in fact supply even greater justification to refrain from enforcing the prohibition, given the concern of reducing the incentives available to importers or local players considering entry into the market. See: David Gilo "Excessive Price" pp. 768-769 and Michal (Scheizer) Gal and Hila Nevo "The Influence of the Doctrine of Decisions on Shaping Legal Rules: Unfair Price as an Abuse of Monopolistic Power" Mishpatim 45 277, 305-306 (5775) and also Michal (Scheizer) Gal and Hila Nevo "Excessive Price as an Abuse of Monopolistic Power: the Trojan Horse" due to be published in Mishpatim 5777 Part 3. The Antitrust Authority is of the opinion that the unique characteristics of the Israeli economy are insufficient to change the list of considerations to be exercised in relation to enforcement, but they may be relevant to a specific examination of a particular product market.

[33] This is also the position accepted by competition authorities enforcing the prohibition against excessive prices and also the position of most scholars in the field. See Part 4 above and the Jenny Opinion Parts IV and II.

[34] For a distinction between a static and dynamic analysis, see Opinion 1/11: Guidance for Competitive Analysis of Horizontal Mergers (23.01.2011), Antitrust 5001710 p. 3 of the Opinion.

[38] See in this matter the conclusion of the British competition authority in the Durex case, where the competition authority refrained from instituting measures against the price charged by the dominant firm against the background of development of competition in the market, see:

[43] Such as cases where the demand for the product or the service is rigid.

[44] Judge Grosskopf even noted in the Weinstein Case that "the prohibition against charging an excessive price by a monopoly is a concrete expression, in antitrust, of the general prohibition imposed in Israeli law against abusing a position of power to achieve contractual conditions that deviate from the standard and fair, or in a word: exploitation" (see paragraph 11 of the judgment).

[45] See for example Motta and de Streel, pp. 22-23 and 42 and also the roundtable document in p. 50 and the references there.

[47] Here, an "essential product" is a product for which consumers have an inelastic demand curve and there are particularly few products that constitute reasonable substitutes in the eyes of the consumer.

[48] See for example Motta and de Streel, p. 17, David S. Evans & A. Jorge Padilla Excessive Prices: Using Economics to Define Administrable Legal Rules CMFI Working Paper No. 0416 (Sep. 2004) pp. 3-4. See the background document of the OECD roundtable at pp. 24, 33, the European Commission's position at the roundtable p. 311 and South Africa's position at the roundtable p. 371.

[50]{C}{C}{C} See for example: Richard Whish COMPETITION LAW (8th Ed. 2015) pp. 760-761, Areeda and Hovenkamp ¶ 720 and the Jenny Opinion pp. 41-42. The experience accrued by the Authority also shows that the resources required to enforce the prohibition against unfairly prices are vast, and that enforcement cases of this type have relatively low chances of success.

[52] See Commission Decision of 23 July 2004, Case 36.570 Sundbusserne v. Port of Helsingborg, and also Commission Decision of 23 July 2004, Case 36.568 Scandlines v. Port of Helsingborg pp. 228-233 and also at Motta and de Streel p. 38.

[67] Nevertheless, this method is not valid in industries that labor-intensive, since labor costs have a critical impact on the differences in costs. Furthermore, difficulties arise in the comparison when the set of products that consumers purchase in two countries are different from each other, particularly as to the comparison's validity when there are differences in consumer preferences between the countries. There are also technical difficulties in international comparisons: macro-exchange rates are not always the appropriate exchange rates, and in any event they are measured at a particular point in time and not over a period. Similarly, different tax regimes are liable to bias the results.